Southern California Edison has priced a $1.2 billion dual-tranche corporate bond offering after its credit ratings were placed on a firmer footing in the wake of a wildfire risk mitigation law.
The utility company priced a $400 million 10-year first mortgage bond at 95 basis points over Treasurys and an $800 million tap of its existing bonds due in 2047 at 130 bp. Bank of America, JP Morgan and MUFG as bookrunners.
The final pricing was well inside initial price thoughts, which were in the area of 125 bp for the 10-year and 150 bp for the short 30-year notes. Pricing guidance was later refined to 105 bp and 135 bp plus or minus 5 bp, but the margin of error was exceeded on the shorter tranche when the spread landed at its final, even tighter mark.
The utility will use the proceeds to fund its contribution to a wildfire insurance fund that was established as part of the AB 1054 legislative package recently signed into law by Gov. Gavin Newsom on July 12.
The company has said it will fund the other half of its $2.4 billion commitment through the issuance of equity at its parent company, Edison International.
The three main credit rating agencies have taken a favorable view of this plan and the measures passed in AB 1054 in general.
S&P Global Ratings is no longer reviewing the utility for downgrade and has affirmed its BBB corporate rating, while Fitch Ratings and Moody's Investors Service have changed the outlook on their BBB- and Baa2 ratings for the company's $16 billion debt pile from negative to stable.
The company's first mortgage bonds, as senior secured obligations, have higher ratings of A3/A-/BBB+.
"We expect that Edison and SCE will benefit from the credit-supportive measures within AB 1054, which offset the risks of its increased susceptibility to catastrophic wildfires due to climate change and California's courts' interpretation of inverse condemnation," wrote S&P analysts on July 26. "In our view, credit-supportive measures within AB 1054 include enhanced liquidity through the use of the insurance fund, a liability cap even if the utility is found to be imprudent, and revised standards of a utility's reasonable conduct."